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Property Tax: Definition, Methods & How to File?

Created on 10 Oct 2022

Wraps up in 5 Min

Read by 1.7k people

Updated on 01 Dec 2022

Property Tax - Insider by Finology

The other day on my way back home, I peeked into the screen of a person who was sitting beside me. He was unhappily searching about property tax and struggling to understand what it is. 

I could see the pain, the confusion and completely relate, as a few years ago, I was in a similar place. Hence, today I woke up and chose violence to explain property tax and its various aspects. 

It is the most common tax based on the assessed value and levied by the governing authority of the particular jurisdiction. The national government, geographical regions, municipalities, or a federal state collect this tax from the taxpayers. 

Now let me help find answers to every question about property tax. This article explores its meaning, methods of calculation, and how to pay it online. 

What is Property Tax?

Property Tax is the annual sum paid by a land owner to the local or municipal government of the area for owning the property. 

The interesting fact about this tax is that it's not similar for every citizen in the country. The people of Bangalore pay this tax at 20% for residential properties and 25% for non-residential properties. This is the highest property tax rate in the country.

For some reason, property tax rate of different states in not an easy and public information available on the internet. Hers’s property tax collections from the pre-previous decade-

Property Tax Collections in Current Prices : Delhi vs Bangalore
Property Tax Collections: Delhi vs Bangalore

Property tax services help companies to find seamless, streamlined, and tax-efficient ways to solve any issues related to property taxes. In addition, they use efficient processes, proprietary technology, and deep experience. Other than that, tax advisory companies are also helping their clients to understand land tax.

Land tax or location value tax is similar to property taxes. It is levied on the value of our lands. However, buildings, property and other infrastructures are not taken into consideration for this tax. 

And then, there’s rent tax. Don't get confused between rent tax and property tax - they are quite different! Rent tax is levied on rental income or imputed rent, while property tax is levied on any of our property, whether it's empty or on rent. 

Property tax paying - Insider by Finology
Source: Bored Panda 

How to pay property tax online?

There are a lot of jurisdictions that still do not offer the option of paying property tax online, and I’m sorry but you’ll have to find that out on your own by visiting your local government’s office. 

But there are some that do and you will be able to save your money and valuable time by streamline the whole process by paying property tax online. 

Here's a comprehensive guide that can be used to pay property taxes. 

Steps to follow for Paying property tax online:

Step 1: Open the city corporation or municipality’s official website. 
Step 2: Log in to the website and choose to indicate property tax from it. 
Step 3: Navigate to the payment methods.
Step 4: Select the right form from the category in which an individual's property falls. The forms will help find the changes made to the property.
Step 5: Choose the assessment year, which refers to the year for which tax should be paid. 
Step 6: The next step is to fill in the property identification number and other documents required for the property. However, it will totally depend on the location and property type.
Step 7: After entering the information, choose the mode of payment from the various payment options like credit, debit cards, and internet banking.
Step 8: A printout can be taken of the receipt for future reference.

On a lighter note, many individuals believe that booking a berth through the Indian railway website is easier than using BBMP's property tax portal, haha!

Property Tax - Insider by Finology
Source: YAF on Twitter

For example, let's assume we have our own house. According to the value of our house, the property tax assessor will calculate the property taxes based on the assessed value. Remember that this assessed value is not the same as the property's fair market value.

So, suppose we are receiving ₹1.2 lakh as rent annually, then we have to pay ₹40,000 as municipal taxes. The net Annual Value of the house would be ₹80,000.  

The value that taxpayers are paying is determined when the property tax rate is multiplied by the market value of the property or land. The taxes are levied on real property classified by the state apparatus, including the land, structures, or other fixed buildings.

Property Tax Rates in Delhi 2022-23 - Insider by Finology

Methods of Calculating Property Tax

Any authority can use three methods to calculate property tax. They are as follows:

1. Annual Rental Value System

Annual Rental Value System is also referred to as ‘Rental Value System’. According to this, tax is calculated after knowing the rental value. The rental value is derived from our property in one year. 

The valuation of the rent should be determined by the municipal authority. In addition, it is also derived according to the size, location, and condition of the property. However, other relevant amenities and landmarks located in the proximal areas of the property are also taken into consideration when calculating the property tax. 

This particular system is followed by Chennai and various parts of Hyderabad for tax calculation.

2. Capital Value System

With the Capital Value System or CVS, the percentage of the property's market value is taken into account for the calculation of property tax. This system also allows authorities to know the property's market value according to its locality. CVS is followed in most areas of Mumbai. 

3. Unit Area Value System

Under the Unit Area Value System or UAS, tax valuation is measured according to the per unit price of our property area built up by the construction team. With this system, the price can be measured based on the returns our property will give us in the future.

However, the returns depend on the usage, location, and land price. Later, the property's value is multiplied by the areas of the property built up. The governments of Bengaluru, Hyderabad, Kolkata, Patna, and Delhi follow Unit Area Value System. 

Unheard Cases   

There have been cases where a person has bought a house, paid for it, registry done, and is living in it for years for in local govt’s books it shows the property is “unsold”! Then, on a random day they that they find out that “Oh no, it’s occupied” to bombard with a huge amount of tax with late fine

To top it up, the Property UID, that is a must to file for property tax online, is very difficult to find out. There have been occasions when the officials themselves were not able to work out the UID even after providing all the supportive documents. 

Property Tax Portal of Raipur Municipal Corporation - Insider by Finology

Conclusion

Well, that’s a relief! Any doubts one must have related to property tax have finally been cleared.

To sum up, this tax is paid on property owned by an individual or an entity. It is calculated by the municipal corporation or a local government. However, the tax rate differs according to location, size, and other factors. 

We can also pay the property tax online by following the steps mentioned above. Don't worry about the tax value, as the local government of cities will calculate it with the help of the ARVS, CVS, and UAVs.

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Abhishek Sahoo

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Abhishek has a love for numbers and words alike. With a passion for finance and interest in writing, he’s blending both as a Finance Content Writer at Finology. He writes to simplify the toughest of the technical stuff for readers and tries to make the reading exercise interesting. He is a CA Final candidate and aims to pursue a management degree from a top-notch b-school.

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